Ladies and gentlemen, welcome to Bouygues nine months 2019, sorry, results conference call. I now hand over to Karine Adam, Head of Bouygues Investor Relations. Please go ahead.
Thank you. Good morning, ladies and gentlemen. I would like to remind everyone that you can find on the company website at www.bouygues.com, the earnings press release, the presentation we will be commenting on during this conference call, an Excel file with historical key figures for the group and each business, and the company's financial statements. Statements made on this call are forward-looking statements. Such statements reflect objectives that are based on management's current expectations or estimates and are subject to a number of factors and uncertainties that could cause actual figures to differ materially from those described in the forward-looking statements. I will now turn the call over to Mr. Philippe Marien, Deputy CEO of Bouygues.
Thank you, Karine. Good morning to all of you, and thank you for joining us. I would like to welcome everyone to our conference call to discuss Bouygues nine months results. With me in the room is Christian Lecoq, CFO of Bouygues Telecom, and Pascal Grangé, former CFO of Bouygues Construction. As you know, Pascal will replace me as CFO of the Bouygues Group following my retirement at end February 2020. Following my comments, we will be answering your questions. To begin on slide four, the nine months results are in line with the trends we discussed during the first half announcement. First, the profitability of the group improved year-on-year, driven by the three sectors of activity. Second, the construction businesses delivered a solid performance. The backlog remained at a very high level at end September, and the current operating profit increased.
Third, Bouygues Telecom continued to deliver strong commercial and financial performance, thanks to a differentiation strategy focused on reliable and high-quality networks, as well as a simple and seamless customer experience. In this context, we confirm the full-year outlook shared with you in February and confirmed in August. The key figures shown on slide five confirm the increase in the group's results. Group sales of EUR 27.6 billion were up 9% in the nine months, like-for-like and at constant exchange rates. Group sales, as well as sales in France and international markets, were all up 5%. Current operating profit improved in the first nine months of 2019 and was up EUR 216 million compared to the first nine months of 2018. This performance was driven by the three sectors of activity, as highlighted in the table.
At Bouygues Telecom, the current operating profit rose by EUR 74 million year-on-year, thanks to solid and continued top-line growth. TF1 delivered a EUR 57 million current operating profit increase, which was already discussed during the publication of their nine months results on October 30 of this year. Third, the construction activities posted growth of EUR 122 million in current operating profit year-on-year, boosted by a recovery in energy and services, a strong dynamic in mainland France roads business, and a return to breakeven at Colas Rail. The year-on-year group current operating margin reached 4.1% for the nine months 2019. Group operating profit included non-current income of EUR 50 million in the first nine months of 2019, mainly related to the capital gain on the sale of sites to Cellnex at Bouygues Telecom versus non-current income of EUR 198 million in the same period of 2018.
Net profit attributable to the group increased by EUR 77 million from a year ago. It includes Alstom's contribution of EUR 238 million in the first nine months of 2019. Of note, this contribution takes into account the net capital gain of EUR 172 million from the disposal of 13% of Alstom's share capital in the third quarter. These results confirm our ability to meet our 2019 objective of improved profitability at the group level. Let us move down to slide six to see the net debt evolution from end December 2018 to end September 2019. On slide six, net debt was EUR 4.6 billion at end September 2019, up EUR 1 billion compared to end December 2018. Compared to end September 2018, net debt was down EUR 0.8 billion. This increase over year-end is explained by several items.
First, an inflow of EUR 1.4 billion related to Alstom, comprised EUR 1.1 billion of proceeds from the September sales of 13% of Alstom's share capital and July's dividend of EUR 341 million. Second, an outflow of EUR 165 million in acquisition and disposals, coming mainly from the following acquisitions, Keyyo and Nerim at Bouygues Telecom in Q1, De Mensen and by TF1 in Q2. Please keep in mind that net debt at end September 2019 does not include the acquisition of Reel One by Newen at TF1. The third item is the outflow of EUR 710 million for the dividend. Finally, we had an outflow from operations as discussed in the next slide. Turning to the breakdown of operations on Slide nine for nine months 2019, you can observe that net cash flow, including lease expenses, grew EUR 109 million year-on-year, excluding Alstom's dividend of EUR 341 million.
This increase was led by Bouygues Construction for TF1. Net CapEx is down EUR 58 million, mainly due to Bouygues Telecom, as expected, while net CapEx for construction activities is almost stable. As a result, free cash flow generation before working capital requirement has improved by EUR 167 million year-on-year. Last, working capital requirement increased by roughly EUR 400 million.
A working capital requirement improvement at Bouygues Immobilier did not offset the deterioration of Bouygues Construction, which is linked to progress on major projects. By year-end, we expect net debt between EUR 2.6 billion and EUR 2.7 billion, with an increase in working capital of around EUR 400 million, which is the level at end September 2019. While we do not expect to offset the increase in working capital that we have experienced so far this year. It is not the result of any structural trend, but rather more of a timing issue.
I will now turn to the review of operations, starting with the construction businesses. Let's begin with the backlog on Slide 10. At EUR 32.5 billion, the backlog in the construction businesses at end September 2019, remained at a very high level. As you can see on the chart, it is the second highest level of activity in the past six years. Despite a decline of 4% in the overall backlog at end September 2019 compared to the same period last year, the commercial momentum of both Colas and Bouygues Construction remains good, as you will see in the following slides. Let us now turn to France, as illustrated on Slide 11. In France, the backlog at end September 2019 reached EUR 14 billion, a slight decline compared to last year at constant exchange rates and excluding major acquisitions and disposals.
At Colas, the backlog was up 7% over the previous year, boosted by an 8% growth from roads in mainland France. At EUR 8.5 billion at end September 2019, Bouygues Construction's backlog was slightly down compared to the same period last year. Significant contracts were booked in Q3 2019, including the harbor expansion of Port-l a- Nouvelle in southern France for EUR 199 million. Important tenders are expected in 2020 related to Grand Paris Express. As anticipated, the backlog at Bouygues Immobilier was down 11% compared to last year. This is due to the absence of commercial property order intakes in the first nine months 2019, as well as a decline in the French residential property reservations in a slightly contracting housing market. This slowdown in French residential market could continue in the first half of 2020 within the context of local elections in the spring.
Let us now move to international markets. International markets are dynamic, especially in countries where the group has a long-standing presence. In this environment, as shown on Slide 12, the backlog at end September 2019 remains unchanged at a high level of EUR 18.5 billion. Orders for the quarter notably include two major contracts, the construction by Bouygues Construction of a 4.4-km tunnel in Hong Kong for EUR 364 million, and the construction by Colas of a taxiway at the Los Angeles International Airport for EUR 75 million. Some significant orders are expected in Q4 2019 and in 2020 at both Colas and Bouygues Construction, as evidenced by today's announcement of a EUR 756 million contract at Bouygues Construction for the design and excavation of an undersea tunnel in Hong Kong. Overall, the share of order book in international markets rose from 59% one year ago to 61%.
Let's now move to the nine-month results of the construction businesses. Turning to slide 13, sales were up 9% in the nine months 2019, and up 4% like-for-like and at constant exchange rates, demonstrating dynamic activity at Colas and Bouygues Construction. The construction business's current operating profit increased by EUR 122 million in the first nine months of 2019 compared to the first nine months of 2018. Current operating margin was up 0.4 points over the same period. Several factors led to this increase. At Bouygues Construction, the rise year-on-year in current operating profit was driven by a recovery in energy and services following difficulties in the completion of three projects in Q3 2018. As highlighted, energy and services current operating profit was positive at EUR 51 million in the first nine months 2019, compared to a loss of EUR 139 million in the first nine months 2018.
Energy and Services nine months current operating margin reached 1.8%, while Building and Civil Works delivered a 3.2% margin. At Colas, current operating profit increased by EUR 59 million over the same period. Excluding this year's negative contribution of EUR 228 million from Miller McAsphalt in January and February, Colas current operating profit was up EUR 87 million year-on-year, reflected a strong improvement. As a reminder, the results of Miller McAsphalt in January and February were not consolidated last year. The EUR 87 million increase was driven by a solid momentum in the roads business in mainland France, and the return to breakeven at Colas Rail, thanks to recovery measures implemented since end 2018. At 2.2% in the first nine months 2019, Colas current operating margin was up 0.5 points, and excluding the negative impact from Miller McAsphalt, it was up 0.8 points.
As previously mentioned, Bouygues Immobilier is experiencing weak activity in commercial property development. In residential, a buoyant French market related to peak reservations in 2017 has strained resources, putting pressure on margins. Let me turn the call over to Christian.
Thank you, Philippe. Starting with slide 15, you can observe that our commercial performance remained very strong. We won 501,000 new mobile plan customers, excluding M2M, in the first nine months of 2019. Of which 220,000 were in the third quarter. In FTTH, net adds have accelerated with 286,000 new customers joining us in the first nine months of 2019. Of which 110,000 were in the third quarter alone. FTTH customers represented 20% of the fixed customer base at end September 2019, compared to 13% one year ago. The FTTH customer base at end September 2019 has almost doubled compared to one year ago with 855,000 subscribers. We expect this trend to continue, allowing us to reach 1 million FTTH customers by year-end. Overall, at end September 2019, Bouygues Telecom serviced 11.4 million mobile plan customers, including M2M, and 3.8 million fixed customers.
As shown on slide 16, Bouygues Telecom delivered solid top line growth in the first nine months 2019. Sales were up 13% year-on-year and 11% like-for-like. In line with first half year 2019, sales from services rose 7% in the quarter thanks to three factors. First, continued growth in the mobile and fixed customer base. Second, stability of mobile ARPU at EUR 19.9 for two years.
Third, the significant EUR 1.1 increase in fixed ARPU year-on-year to EUR 26.6. This increase confirms the success of a strategy in the fixed market. EBITDA after leases for the nine months was EUR 1.05 billion, an increase of 13% year-on-year. Traditionally, EBITDA margin on cell phone services was up 1.6 point to 30.9%. At EUR 460.065 million, operating profit was down EUR 80 million compared to the first nine months of 2018, reflecting as anticipated, the drop in non-current income. Two reasons explain this decline.
Lower numbers of mobile site disposals with EUR 58 million in nine months, 2019, compared to EUR 127 million in nine months, 2018. Non-current income of EUR 110 million booked in Q3, 2018, related to the consolidation of 1800 MHz frequency charges accounting for full year to 2018. Gross CapEx at EUR 734 million in the first nine months, 2019, are down EUR 186 million year-on-year, in line with expectations for 2019. Free cash flow before working capital requirement improved by EUR 27 million- EUR 205 million in the first nine months, 2019. Please keep in mind that in the first nine months, 2019, Bouygues Telecom has already paid EUR 144 million of income tax versus EUR 82 million in the first nine months, 2018.
Since we expect to pay lower income tax for the full year 2019, related to the decrease in non-current income, we will pay a smaller tax amount in Q4 than last year. We are therefore confident of reaching our target of free cash flow generation of EUR 300 million by year end at Bouygues Telecom. Moving to slide 17. You see that for the second consecutive year, Arcep ranked Bouygues Telecom number one in rural areas and was recognized second on average in France, thanks to the quality of its mobile network. We are proud of this result since we were either number one or number two in all KPIs. Bouygues Telecom's focus on network quality and continued on services and future developments provide confidence in the mobile network leadership and growth strategy. Slide 18 highlights that our growth strategy is based upon three main drivers.
First, we benefit from an increase of mobile market share in dense areas. Our mobile network sharing has resulted in 50% more sites compared to 2016. Additionally, we are strengthening our local distribution channels with the opening of around 50 stores. The second driver is a growth acceleration in FTTH. At end September 2019, we have 10.2 million premises marketed up 3.9 million year-on-year. We are covering 85 French departments and over 3,090 municipalities. Our goal is to market 12 million premises by end 2019 and 20 million premises by 2022. The third driver is the B2B market. The acquisitions of Keyyo and Nerim are strengthening the Bouygues Telecom Entreprises position in both mobile and fixed with the focus on the SME segments. The integration process is ongoing, and we are currently migrating their technical infrastructures to Bouygues Telecom infrastructures.
Regarding Keyyo, the good news is that we are already benefiting from our first positive commercial synergy.
Thank you, Christian. I would like to briefly comment on the financial statements. We have already looked at sales and current operating profits shown on slide five. Let us now have a look at other income and expenses contributing to operating profit on slide 20. The EUR 148 million decrease in non-current income compared to one year ago came essentially from Bouygues Telecom, as explained by Christian. Moving to slide 21, as you can see that income tax expenses increased by EUR 60 million, leading to an effective tax rate of 33% for the first nine months, 2019. Moving to the associates and joint ventures line, the EUR 34 million positive change is explained mainly by the improvement in results at Tipco Asphalt, a Colas subsidiary that manufactures and distributes asphalt products in Southeast Asia. Finally, we will turn our attention to the outlook for the full year.
As you can read on slide 23, as stated at the beginning of this call, we confirm the outlook shared with you in February and confirm in August. This concludes my presentation. Operator, please open the floor for questions.
Ladies and gentlemen, if you wish to ask a question, please press zero and one on your telephone keypad. As a reminder to our participants, please limit yourselves to two question, please. Thank you for holding until we have the first question. We have our first question from Nicolas Cote-Colisson from HSBC. Go ahead.
Thank you. Hello. First question on telecoms. You posted a significant increase in broadband ARPU this quarter, but the mobile ARPU is still flat, though. When do you think we should see the effect of price increases? Looking forward, what's your view on pricing models for 5G in the B2C segment, especially? I've got a second question for other businesses. New management teams at Colas and Bouygues Immobilier are implementing efficiency plans or optimization plans. Can you tell us a bit more about this and whether we should see that as a way to win more contracts or improve margin or both? Thank you.
Hi, Nicolas. This is Christian. Your first question about mobile ARPU, which is flat. It's mainly a mixed effect between low-end markets and high-end part of the market. We still continue to include our price either for our new clients and also for the existing clients. It takes time to see that in the ARPU. 5G ARPU, of course, we did not discuss or in advance our marketing strategy, but I think that our goal as all our competitors is we will try to get more money, to take some money, thanks to 5G.
Regarding Colas and Bouygues Immobilier. At Colas, there is no change because of the new management. In fact, the strategy or some recovery is based mainly on the recovery at Colas Rail, the plan was implementing since the beginning of 2019. No change. The idea is to come back to a safer situation in Colas Rail, mainly by reducing the SNCF share of the French activity of Colas Rail. We have solved the freight issues at the end of 2018, no change, the idea is obviously to increase the profitability of Colas Rail. Regarding the rest of the activity, no particular change because of a change of management. The idea is, launched two years ago now, launch development in carriers and aggregates on one side and bitumen strategy on the other hand. It's not a change because of the management.
No real change because of new management. Regarding Bouygues Immobilier. Clearly, we are facing a weak situation in terms of residential. First, because of decrease in reservation in 2018 and now in 2019 because of the general environment, and mainly because of the municipal election. We anticipate to have a better situation second half of 2020 with new phases for reservations and permits. That's the first one. Decrease in terms of activity, so lower margin, obviously. The second issue we have is clearly an increase in terms of building cost. Because of, again, a nice situation in construction, thanks to the good reservation in 2017. This situation probably will last up to the end of 2020, and we will recover a nicer situation in 2021 because of the decrease in the construction market for residential, mainly.
Again, because of the decrease in reservation in 2018, 2019. That's the key issue for Bouygues Immobilier and the new management is facing to this situation. We'll prepare a series of measures to accelerate the recovery in 2020, and we will discuss that at the beginning of next year to explain the various action we will take into account.
Okay. Thank you.
We have another question from Andrew Lee from Goldman Sachs. Please go ahead.
Yep. Good morning, everyone. I had a couple questions. One was on telecom churn. You're annualizing your more aggressive promotions from 2018, and it's over a year since the five-year mobile promotions in the market were pretty much removed. Are you seeing any increased churn as customers come off these promotions? Secondly, just on your mobile service revenue, year-on-year growth looks like it slowed a little versus last quarter. Just wondering if you could give us any color on any particular reason for that. Thank you.
About your first question about the churn rates for clients we acquired last year at a very low price, and they are still at very low price, in fact, and the price for new clients is higher than what they are paying today. Of course, they are not churning. John, is it clear?
Second question.
I don't remember the second question.
Second, in your revenue.
Your question is about the revenue?
Mobile service revenue growth.
Sorry. I think that you have to keep in mind that I think that you are calculating the service revenue by multiplying. Yes, the total base multiplied by the ARPU. Then you get only the revenue billed to the clients. To go to the service revenue, you have to add or subtract many things. You have the incoming call and SMS revenue, you have the MVNO revenue, you have the roaming revenue, and you have the IFRS 15 impact. All these kind of things are not, I would say, linear or it's very difficult. You can have some different impacts quarter- by- quarter. That's why it's very difficult to go from the subscribers increase plus the ARPU change to the service revenue % increase.
Thank you.
Mathieu?
Hello?
Mathieu Robillard? Yes.
[Foreign language] Hi.
Hi.
Two questions, please. First, in terms of the EBITDA trajectory in Q4 on telecom. Clearly in Q3, the trajectory was a bit slower because as you pointed out, there was some one-off from Q3 2018. When we look into Q4 2019 and beyond, should we expect the operating leverage to re-accelerate, assuming obviously that the pipeline continues to grow nicely? Is there any change in the cost structure that will prevent the EBITDA from progressing strongly? In terms of Colas, when you look at your order book today, how is your expectation for 2020? Typically, as you flagged in the past, during election years, Colas can be a bit weak, but it seems the order book is actually quite solid in France. I was wondering what would be the output for you for Colas in 2020 in France. Thank you.
About EBITDA growth from Q3, that's right. I remind you that we had, last year, the impact of 1800 MHz frequencies, which we had to recognize the minus EUR 8 million in Q1, minus EUR 8 million in Q2, and plus EUR 16 million in Q3. Our EBITDA growth, I would say, was better in Q1 and Q2, and it is worse in Q3. If you exclude these elements, you will see that the EBITDA growth is quite stable. I won't disclose the Q4 indication, of course, we expect to see continued growth in term of EBITDA. Even if it should be slower than in the past, than last year, especially, because part of our growth is coming from the fixed. We have more and more fixed cost related to DSL or FTTH. First point. Second point, we are investing in our customer satisfaction program.
That's our main customer experience. That's our main strategic goal for the coming year.
Regarding Colas, you're right. We always decrease in term of order intake following a pre-election year, during the election year. Probably and surely we will have the same phenomenon as in the past. Nevertheless, we consider that the impact will be less important than previously.
In excess of this pre-election year phenomenon, we have clearly another element which is an increase in our order intake, not because of election year, but because of the status of the French road network. After a very long period from 2012 to 2017, we have seen a decrease because of the local authorities budget constraints. We have seen a big decrease in terms of budget for maintenance on the road business. The status of the network is not good. In excess of the usual pre-election year phenomenon, we see clearly an increase in our backlog because of pure maintenance activity. We consider that this trend will continue in 2020. For sure, we will see a decrease, but not so important as the previous years.
Thank you very much.
We have another question from.
On top of that, we have obviously the Grand Paris Express program which leads to have a new category of deals and business coming from this big program. Clearly we are sure that we will continue to have new orders coming from the Grand Paris Express because after the tunnel construction, we have to equip the tunnels with rails. For Colas Rail, clearly we see a relatively good 2020 year in France because of the Grand Paris program. Not so bad as previously for roads and good dynamic for rail.
Very good. Thank you.
We have another question from Mr. Giovanni Montalti from UBS. Go ahead.
Hello. Hi. Thanks for taking my question. It is almost a year you signed the agreement for a partnership with Mirova and Axione around the deployment of fiber in dense areas. I was just wondering if you could give us a bit of color on the way this JV is going in terms of rollout, in terms of the way financials are working, and also if you may consider eventually extending this JV also to the less dense areas, to the rural areas as other players are doing. Thank you.
Okay. We signed with CityFast, which is a subsidiary of Mirova as at the end of last year, an agreement for deploying 3.4 million premises in FTTH in the very dense areas. The deployment is an ongoing process. I don't know exactly where we are, but it should take around three years to quite finish the area. It's a very good part of the partnership, and we are very happy to work with Mirova and Axione on this topic. Regarding your other questions about doing other things in the rural areas, I just remind you that we do not have any infrastructures as Bouygues Telecom in rural areas because the FTTH network is rolled out by either Orange or SFR in the medium dense and by specialized operators in the public initiative network area.
No, for sure. I understand that. I was, for example, thinking of the JV that iliad has created with a financial partner to, let's say, help finance the co-investments that they have to do exactly with the big operators or with Orange and Altice in medium dense. Would you consider doing something like that eventually using this vehicle you have already created or, I don't know, joining the one with iliad, joining forces? I don't know. Just understanding how you would think about this. Thank you.
Of course. The iliad scheme is a clever scheme. We are studying the scheme, and we will look what we will do probably next year.
It could be possible for alternative carriers to join forces. It could make sense for everybody. You would have a larger scale. There would be a diversification of the risk.
Definitely, it's a very clever scheme. We will see in the future if this scheme could be adapted to us, and definitely it's very clever and could be useful. We will see. We'll think about.
Thank you very much.
Thank you.
We have another question from Stéphane Beyazian from MainFirst Bank. Go ahead.
Yes. Thank you. Two questions if I can. The first one is, if I'm looking at the broadband market in the third quarter, what is interesting and intriguing, I would even say, is that all the operators have been growing their broadband base, which is something new, because for the past couple of years, there was a loser pretty much every quarter in the past couple of years. I was just wondering whether you have any view and explanation about that, any view on the overall market, or that could help us understanding why everybody's winning now. My second question is regarding the Bouygues Construction, sorry, to be more specific, where we are seeing a little bit of pressure there. Obviously, I think it is not including the Hong Kong contracts, which are pretty strong. Again, we are still at relatively high historical levels.
I'm just wondering whether you think that possibly you are at the peak levels on your current geographies, and whether you think that you may need now to be entering or pushing ahead stronger in new geographies where you haven't been so much, such as Germany, for instance, that could help you perhaps to further expand the activity of construction internationally. Thank you.
About the fixed market in France, I imagine you know just that the market is a growing market by more than 500,000 more households each year. That's why that sometimes someone is losing some customers and some other is gaining more customers. It's a growing market, more than 500,000 there.
That's all?
Okay. Regarding the backlog of reconstruction, clearly the backlog of reconstruction is not under pressure. Clearly our strategy, and we said that for years, our strategy is not growing strategy at any price, but clearly a selective approach on a project-by-project basis to be sure that we increase our margin, which is our key target. Our target is not to increase, by any means, our backlog. We are not under pressure. We consider that we have sufficient opportunities in front of us to be selective, and it's exactly what we have done in 2019. As you have mentioned, backlog in construction is always very difficult to compare one day to another because the day after you can have a new contract. What is important is the general trend.
The general trend remains very solid because as we explained last year in October, in September, or October, I don't remember, in October, the construction landscape for us is a nice one in term of opportunities, mainly in the mature countries in which we have a footprint. The idea is not accept very specific opportunity, the idea is not to enter massively into a new country because, again, in the countries in which we have a good footprint, the opportunities are there. Clearly we will continue to develop our activity in sophisticated contracts based on projects with sophisticated solution in term of low energy consumption, in term of smart cities, in term of sophisticated infrastructure. Exactly what we have done in the recent past. For us, the market remains good.
Again, it's sufficiently good to be selective, to be sure that we will be able to deliver good margin in the coming years. That is our key target, and the target is not to increase again at any price, at any condition, the volume of our activity. We have absolutely no fear about our backlog in construction because of the good trend, generally speaking, in term of stimulus plans with infrastructure as we have in France, for instance, or in England or in Eastern Europe or in Australia and other countries. No big change, no new geographical areas except opportunities based on a specific project. Again, the situation for us remains good because of a lot of opportunities leading to have a great selectivity on projects.
All right. Thank you.
We have another question from Alexandre Roncier from Exane. Go ahead.
Hi. Thanks for taking the question. Can you give us some more color on the benefits you would see from the upcoming IMO 2020 regulation? More specifically, how this should affect your different business lines, both on the revenue side for Miller McAsphalt. As I understand, there's worry in the market that asphalt contract pricing could see pressure, whilst you might benefit on the cost side for your construction activity. What kind of net benefit could we see on margin in the coming years? Secondly, working capital has been becoming more of a drag than expected, I think, for the first nine months. How confident are you that you can normalize working capital level in light of your 2020 free cash flow guidance? Thanks.
Regarding IMO 2020, for us, clearly, as Colas is the first buyer of bitumen in the world, first. Second, we have already two big geographical platform to store and distribute bitumen in North America, thanks to Miller McAsphalt, and in Southeast Asia, thanks to Tipco Asphalt. We consider that it's an opportunity for us to increase this activity of storage and distribution of bitumen. The idea is the creation of a third platform in Europe, starting with a French facility. Clearly for us, it's an opportunity to increase this good activity because, as you have seen with Tipco Asphalt on one side, or Miller McAsphalt, this activity has a higher margin than the average Colas margin. For us, definitely, it's an opportunity to increase our margin in the future.
Based on the two existing platforms first and second, by the opportunity to create a third platform in Europe. Regarding working cap 2020. Clearly, as usual, it's not always very easy on the construction side to monitor precisely the working cap requirement. Clearly, for 2019, we will not be able to reach our target, which was a zero variation in working cap requirement, and we will be more in the range, as I have said, in around EUR 400 million, mainly due to Bouygues Construction timing effect.
We will take some measures to improve that. The idea is to have sufficient headroom on the other activities or on the regular Bouygues Construction activities to mitigate, obviously, variation by structure in Bouygues Construction, because one contract at the end of the year with a big advance payment obviously improves dramatically the working cap requirements one year and not the year after or not the year before. Clearly the idea is to create headroom from other activities in the Bouygues group and in the regular activity, the bread and butter activity of Bouygues Construction, to be able to mitigate this variation we have always in the building and civil work activity. It will be the way to secure the idea of the EUR 1 billion free cash flow generation after working cap within the coming two years.
Very clear. Thank you.
We have another question from Frédéric Boulan from Bank of America. Go ahead.
Hi. Thanks for taking the question. First of all, it was really a similar question on the free cash flow generation and the working cap. I think last year was also EUR 400 million negative working cap. Year before, a bit more. It's turning into a trend, and it wasn't like that before. If you can extrapolate a bit more on what's driving this, and you talk about timing of contract, but shouldn't we have over the medium to long term, a zero number? We should have inflows over time and specifically on the big outflow this year. Is it something that, if it's a timing issue, that is bound to earn one at one point, or it's something that we shouldn't really expect in the medium term?
In the follow-up on the free cash flow point, you mentioned on your starting comment that you got the full EUR 1 billion of inflow from Alstom. This was a dividend. If you can share with us, at the light of your EUR 1 billion target for next year, how the fact that you have this proceed, plus the fact that you expect a significant growth in free cash flow, will drive your policy in terms of return. Certainly, if I may, just to follow up on the previous question on service revenue dynamic. I understand there are some differences between ARPU and service revenue. Service revenue went from 8.5% last quarter to 6.6%, and ARPU seems to be improving in fixed and improving in mobile.
If you can explain a little bit what we could expect going forward, if there is some seasonality or one-off technicals in Q2 or Q3? Q2 was very strong. Maybe Q2 was an outlier. What we can reasonably expect for the coming quarters? Thank you.
Regarding your first set of questions. Regarding our dividend policy, there is no change. The use of the proceeds coming from Alstom, there is also no change compared to my previous comments. We will use the cash by order to develop our existing businesses. Second, to monitor our net debt, and third, to see if there is a possible, and at which level, a return to shareholders. The final decision will be taken at the beginning of next year. We will discuss that precisely in February 2020. With no change on the annual review. If we are able to increase the dividend, obviously we will do that. You are right, if we have a target to increase our free cash flow after net working capital requirement, obviously it will lead to increase the dividend distribution.
Regarding the working cap, you're right, we have seen a deterioration in our working cap in the previous years. Mainly, and we commented that previously, mainly in the last two years, because of very specific reason, except the timing of projects in Bouygues Construction, mainly an increase in the inventories in Colas because of the Miller McAsphalt arrival first, and second, negative working cap in Bouygues Immobilier because of our positioning on big development in neighborhood areas with the acquisition of land, before to launch a very long operation. We consider that now we are entering into a more regular rhythm, so with no more change on that, because now we have this type of operation regularly, but there is no big change coming from the previous situation.
It is the reason why we continue to think that in the future we will more or less around zero in term of working cap variation, with a range of variation because of pure timing effect in big contracts.
About telecom service revenues in the mobile, I think your question was in the mobile. The main difference, as I said before, between revenue billed to the client and mobile service revenue is, of course, incoming call and SMS revenue, IFRS 15 and roaming revenues and MVNO revenues. MVNO revenues, especially now, is at lower than the last year because mainly the pressures that the European Commission put on the price. On the other side, of course, we have less cost on this point. About MVNO revenues, the MVNO revenues is not recognized exactly on a linear basis. Depending on negotiation we can have with our partners on this point. We can have some good news some quarter and bad news some others. That's why you can see difference. Very difficult to go from the view subscriber directly to the service revenues.
Okay, we have another question from Eric Lemaire from Bryan, Garnier. Go ahead.
Hi, thanks. Two questions, please. Firstly, what about this 3.2% margin of Bouygues Construction at the end of September? It is lower than last year when you had some margin, if I remember. Tell me if I am wrong, but it looks like the current operating profit of Bouygues Construction is down year-over-year at end September. Could you confirm that? This is my first question. I had a second question on Bouygues Immobilier. Do you maintain your guidance of 100 basis points margin decline this year, or do you feel it could be worse than 100 basis points? Thank you.
Regarding Bouygues Construction, the 3.2% is not far from our normative margin, which is 3.5%. We are in line with our general average margin in term of building and civil works. After that, you know perfectly that according to the timing of the various projects, we could have variation from 4%-3% depending on the various timing of the portfolio. You are perfectly right. At the end of September 2018, we reach 4.2% in term of building and civil margin, which is absolutely not normative, and we have never said that this 4.2% will be forever. Now we are at 3.2%, which is again, very close from our normative margin. Quarter by quarter, we can move from 3%-4% in building and civil work, which is totally normal according to the nature of the portfolio of our various contracts.
We are totally in line with our normative margin for building and civil work this year. Regarding your second one, Bouygues Immobilier. For sure, now we are mid-November, and we are now unfortunately sure that we will not be able to reach our target, mainly because we will not have all the commercial deals we anticipated previously. We wait for some significant project before the end of the year, but not the full deal we anticipated. The result of that will be clearly an improvement of the margin compared to end of September, but we are not in a position to reach the 6%, and we anticipate to be around 4% for the full year.
Thank you.
Okay, we have another question from Jerry Dellis from Jefferies. Please go.
Just to complete my answer. We continue to maintain the idea that we will be able to increase the margin of the full construction activity in the Bouygues Group because of the improvement of Bouygues Construction and Colas. There is no change on the construction guidance at all. For sure, we will be not at 6% for Bouygues Immobilier.
Okay, good morning. It's Jerry Dellis.
Good morning. Sorry.
No problem. Hi. Thanks for taking my questions. First question is related to the mobile activity. If we do drill through the mobile service revenue number into the services billed to customers, it looks like growth accelerated this quarter to about 4.5%. I suppose as we go into Q4, you start to lap against the improvement in the promotional environment that I think kicked in from Q4 of last year. Does that pose a risk to this revenue growth rate that you're delivering on the mobile side? Second question has to do with fixed service revenues. Again, if we drill into the services actually billed to customers, it looks like service revenue growth on that sort of retail basis was up 11% in the third quarter. If we look back to the second half of last year, this same metric was growing only at 2%.
I'd like to understand, please, whether you think this acceleration in service revenue growth billed to customers is primarily a function of your higher fiber to the home penetration, or is there also an element of you sort of raising your prices to narrow the price discount versus competitors? Very finally, please, could you just confirm again what you regard as being the sort of normative operating margin for Colas, please? Thank you.
About your second question about the fixed revenues. The increase in term of growth rate in the fixed revenue is mainly due to ARPU increase, this is coming from a less promotion and higher price. I think that we raised our price by something like EUR 2 in the FTTH a few months ago. Your first question was about mobile service revenues. The trend now is very good. Many user subscribers, this increase our ability to maintain our ARPU. We hope that we should continue to have a good trend in term of revenues at this level. I don't know if it will be at the same pace as today because the rate is high, the trend should continue at a good level.
Regarding the Colas normative margin. For the road activity of Colas, we remain with the same idea to be between 3.5%- 4% on the normative level. We will be able to reach that at the Colas group level when we will have this level 3.5% margin in Colas Rail.
Which is not the case. Because the situation is breakeven situation, coming from a very big loss in 2018. Breakeven this year, an improvement in the coming years, and again at the time Colas Rail will be able to reach the 3.5%. Probably two, three years from now, we will have 3.5%, 4% for the whole Colas Group as a normative level.
Right. Thank you.
We have our next question, sorry, from Nicolas Cote-Colisson from HSBC. Please go ahead. Mr. Nicolas Cote-Colisson? The line is open.
Sorry. Yeah, just a follow-up question and quick one on Colas in Canada. Revenue is down due to economic slowdown in Alberta. I wonder how we should be concerned about Canada, given you recently increased dramatically your exposure in this country. Also, how much disruption do you get in Hong Kong from the events? Could there be delays in projects which could contribute extra costs? Thank you.
Regarding Hong Kong, at this point, we have absolutely no impact on our activity. We are closely monitoring the situation, but no delay in terms of execution. Except on the weekend, there is absolutely no trouble during the working days. You have seen that the Hong Kong authorities continue to award new contracts and big contracts. We don't anticipate big trouble for us either in terms of delay, in terms of execution, or in terms of pipeline of projects. The situation is relatively uncomfortable, and we wait for a normalized situation in the coming months. Again, for the time being, no negative impact, and it's not only a dream, it's what we are facing today. Regarding Canada, in Canada, the situation is very difficult in Alberta also because of the oil price situation.
The situation is not bad in Ontario, which is the most important footprint for Miller McAsphalt. No problem in Ontario. Again, we have these difficulties in terms of works in Canada, but for the bitumen activity, the situation remains very good because the distribution of bitumen is not only from Canada to Canada, but also from Canada to America. As a whole, the situation is not so good as possible because of this drop in Alberta, but it is not a real negative impact for the whole Canadian activity and mainly for the bitumen activity. There is no negative impact coming from our reinforcement in Canada and the acquisition of Miller McAsphalt.
No, it's all clear. Thank you.
We have no further questions.
Okay. There is no more question. Thank you very much for joining us today. We will be announcing full year 2019 sales and earnings on February the 20th, 2020. Have a good day. Thank you very much. If you have questions, obviously, please contact our investor relations team. Have a good day. Thank you very much to all of you. Bye.
Ladies and gentlemen, this concludes Bouygues nine month 2019 results conference call. Thank you all for your participation. You may now disconnect.